Telecom stocks tank on price war woes

The booming Indian telecom sector witnessed one of its bloodiest weeks on the bourses, as the predatory pricing unleashed by a few wireless players heightened worries over the adverse fallout on the companies' bottomlines. A new plan launched by RCOM coupled with comments from TRAI chief on 'per-second-billing' added fuel to the fire though the regulator tried to assuage investors' concerns by saying that the plan may will not be made mandatory. Bharti, RCOM and Idea shares tumbled badly before recovering on Friday. A string of brokerages slashed their earnings expectations for the telecom titans amid fears that the price war is only likely to intensify with a number of new players waiting in the wings.

Telecom operators would be free to offer various tariff plans to their subscribers, including the per-second billing scheme, TRAI said. Telecom firms would also be free to fix the tariff per second, the telecom regulator said. "We are not looking at mandating per-second billing for the operators. We would float a consultation paper on it and decide only if the industry sees benefits in the system," TRAI chairman J.S. Sarma said. The regulator plans to issue a consultation paper by the end of this year. Currently, majority of the wireless operators charge customers on per minute basis even if the call terminates before 60 seconds. The per-second-billing model is being followed by Tata DoCoMo and new entrant Sistema Shyam.

Tata DoCoMo recently switched to a 'pay per second' tariff model and several other new entrants are expected to launch wireless services with competitive pricing that will likely put pressure on the incumbent players to follow suit. One such company, RCOM, this week swung into action to mitigate the impact on its operations by unveiling a plan called "Simply Reliance" whereby customers (both pre-paid and post-paid) can make Local and STD calls across networks at 50 paise per minute by paying a small one-time fee. The 50 paisa-a-minute rate also applies to SMSes and roaming calls. "TRAI has been following a policy of forbearance so this development comes as a surprise," Manoj Kohli, CEO & Joint MD of Bharti Airtel said. Top officials from Vodafone Essar and Idea echoed his view.